MAGYAR NEMZETI BANK
3.6 Developments in the rollout of the CLS system The due diligence phase of the joint project initiated in early 2014 by the central bank and CLS Bank International was successfully completed in October 2014, following which the rollout of the system was started. This aims to complete the harmonisation tasks identified in the course of due diligence, and to develop the bank operation solution expected to go live in November 2015. In February 2014, the MNB and CLS launched a joint project to make the forint a settlement currency for users of the Continuous Linked Settlement service provided by CLS. Currently, the system enables credit institutions to offer multilateral net settlement for interbank currency transactions in 17 currencies. Bringing the Hungarian currency on board will provide for the settlement of transactions between HUF and other CLS-settled currencies free of foreign exchange settlement risk,47 allowing participating resident and international banks to eliminate a type of risk the management of which has not been a priority to date. Therefore, by establishing internationally harmonised processes, the service provided by CLS contributes to improving the security of interbank cooperation both internationally and within each country concerned. Project members have set 16 November 2015 as the go-live date, as of which the forint will be one of the settlement currencies in the CLS system. As part of the due diligence phase of the project, CLS gained an understanding of the local legal environment and analysed local foreign exchange turnover, and the design and development of joint operational processes with the central bank were started. Based on the information collected in the due diligence phase, the managements of CLS and the central bank adopted a decision allowing the project to enter the implementation phase in the absence of any legal, business or technical obstacles to make the service available in respect of the forint as well. The tasks to be completed during the one year of implementation
include amendments to clarify the provisions of the act on settlement finality in payment and securities settlement systems,48 whereby the legal environment required internationally by the CLS will be created in Hungary as well. Additional tasks include the alignment of VIBER with the IT systems of CLS, the thorough testing of future operations with the participation of the banks intending to use the system, and the revision of the central bank’s account management policy and business terms. One of the most important operational changes will involve the extension of VIBER operating hours, which will bring daily opening earlier to 7 a.m. from 3 August 2015. This is necessary because in the globally harmonised order of operations of CLS, the time window of 7:00 to 9:00 CET will be available for the settlement of HUF payments. Non-resident banks that are CLS settlement members need a resident HUF account holding bank that has sufficient liquidity in the payment schedule specified by CLS, i.e. the morning hours, allowing it to transfer to the HUF account of CLS held with the MNB the amount to be paid by the nonresident settlement member (Chart 19). Apart from creating competition among domestic account holding banks, this highlights the importance of the role played by the forint interbank market, since banks may also obtain funds to manage their morning liquidity from the interbank market. Prior to the launch on 16 November 2015, tests will be carried out in two phases, the scope of which will include all details of future operations. In addition to the account management service provided to non-resident banks, access to the CLS system by resident banks also needs to be developed. The CLS service is available through direct and indirect access, the differences of which are described in detail in the 2014 Payment Systems Report. The MNB gives priority to ensuring that resident banks settle the volume of their own transactions via the CLS system, which is how the integration of the forint into the CLS system can contribute to the stability of the domestic financial system.
F oreign exchange settlement risk, also called Herstatt risk, is the risk that the consideration of a foreign exchange transaction fails to be delivered to the counterparty that has already met its liability. This is connected to the different opening hours applied by payment systems across the world, which essentially result from time zone differences. 48 Act XXIII of 2003. 47
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Payment Systems report • June 2015
